General Pricing Approaches

The price the company charges shall be somewhere between one that is too low to manufacture a profit and one that is too great to produce any demand. Given Figure summarizes the major considerations in setting price. Product prices set a floor to the price; consumer perceptions of the product's value set the ceiling. The company has to consider competitors' prices and other external and internal factors to discover the best price between these two extremes. Companies fix prices by selecting a general pricing schema that includes one or more of three sets of factors. We verify these approaches: the cost-based approach (, break-even analysis, cost-plus pricing and target profit pricing); the buyer- based approach (value-based pricing); and the competition-based approach (sealed-bid pricing and going-rate).